Sunday, 22 March 2020

Why Buy Gold and Silver during Crisis?

And in the next one month, Gold shares plunged to 2008 low at $71 on 26 Oct 2008.

This is more than 30% drop within 1-2 month.

Then come the cutting of interest rate and the Quantitative Easing (QE).

Thereafter Gold share price never look back for the next more than 2 years.

It rallied 250% up to Aug 2011 peaking at $183.

3 Sep 2008 - $98

26 Oct 2008 - $71 (~30% drop)

28 Aug 2011 - $183 (>250% rise)

22 Nov 2015 - $101 (80% drop)

3 Jan 2020 - $157 (>50% rise)

Sources: Yahoo finance.

Silver using iShares Silver chart as reference, is even more crazy, rallying from below $10 to $>46 on Apr 2011. That is a whopping >450% rise!

What already happened

17 Mar – Trump announced plan to send US$1,000 to every American, part of a US$1 trillion (S$1.43 trillion) emergency stimulus package (S$1.43 trillion) to contain the economic hit from the coronavirus.

18 Mar - ECB unveils €750 billion stimulus against coronavirus. The programme will come on top of the €120 billion of additional asset purchases announced by a week before.

The rest of the global also announcing stimulus via reducing rates and reserve ratio. Almost the whole world will start stimulating.

But you may wonder how come government so rich huh? Got so much money to send to people meh? The answer is printing money and more printing via bond purchases.

Conclusion

May expect Gold and silver price to tumble 20-30% in the next 1-2 months or so until Apr-May period.

Then as the global government start to roll out more and more stimulus, precious metal prices will start to rise and probably peak in the next 1-2 or within 3 years. Government of today will never allow an economy to crumble without stimulus.

Of course, predictions will never be accurate.

Hence need also accumulate stocks now, because it is cheap now. Preferably Blue Chips and stocks with huge cash reserves. If price of precious metals never rise, but stocks will rise unless a Great Depression in the corner.

If Great Depression, then no choice. But you can survive by keeping also one year expenses of cash. If cash runs out, then too bad, you have to start selling precious metals, then finally stocks.

Above all, make sure your company will not retrench you, when you dish out your cash on the decreasing stock price. If your company or business is already shaky, with a very weak cash position, then you have to exhibit prudence and wisdom when buying into stocks.

I am more lucky in this aspect, as I have direct access in my company’s bank account knowing our real time financial situation. If you do not have, make sure you keep your ears open and keeping close to your finance controller.

Of course it’s not difficult to tell why in 2012 gold price fall. But guess that is not all important. Because if you just know specific event reason w/o knowing and understand the full picture and underlying reason why gold is important, you can never really invest in it wisely. It’s the same as stocks. You cannot simply just ask a Guru which stock is the best to invest.

Our own study into the history of the stock, it’s fundamentals, and how it will perform going forward, IS all important than the stock tips.

Knowledge gives us ability to control our own emotions because with knowledge, then you can have faith in the “items” you invested, despite the swings!

Hence, my recommendations for LONG TERM good, is for you to go to Youtube and search Mike Maloney - History of Money.

Alternatively, you can read my previous 3 articles about gold and silver.

Hi Rolf,Referring to "May expect Gold and silver price to tumble 20-30% in the next 1-2 months or so until Apr-May period."

Could you please share a bit more about your line of thought in this? Are you expecting a sudden upward shift in growth outlook which is short lived and immediately follow by another round of Stimulus? Thank you.

Dear Learner, every prediction I made with regards to time is always wrong. This one is no different. So do not follow advice but just read the fundamentals and reasoning that can change your mindset.

That said, every prediction should have a reason and should have actions taken as a form of preparation. For the past 2-yrs, I had been warning my friends about crisis, due to the over-bought markets & optimism of general public. And most important of all, is then I took action and continue to patient and NOT invest and accumulate cash.

For GS, why I expect it to decline, I thought I already explained in above article and chart.

After the deadcat bounce recently, if there is another rounds of collapse and during a panic sell-off, People will sell everything including GS for margin calls, or in general keep cash (USD), so naturally GS will be sold off too!

Or if the economy is thought to be growing again, and interest will turn from GS to stocks, GS may decline too.

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Disclaimer

This blog and its contents contain the opinions and views of me. It is not a recommendation to purchase or sell the stocks of any of the companies or investments herein discussed. If a reader requires expert financial advice, a competent professional should be consulted. I cannot guarantee the accuracy of the information contained herein the blog and its contents. Other than being the shareholders of some of the stocks discussed herein at the time of writing, I am not in any way related to the company mentioned within the blog. I specifically disclaim any responsibility for any liability, loss, or risk, professional or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any contents of this blog.